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Vietnam investors hit Cambodia

Thai instability has provided an opportunity for Kingdom’s eastern neighbour, observers say

It will take some time to match viet-namese knowledge and experience."

VIETNAM has taken the mantle of the largest source of foreign business registrations in Cambodia for the first time in at least a year, according to the Ministry of Commerce (MoC).

But the change is more than a mere statistic, observers say, and heralds in a new era of economic cooperation that, while boosting growth, may also hurt domestic businesses in the short term as they struggle to compete with their more experienced Vietnamese counterparts.

MoC data released this month show that Vietnam has pipped foreign investment stalwarts China and South Korea to drive the surge in foreign company registrations during April.

The figures confirm what many have felt for a while: Vietnamese businesses – often backed by state-owned institutions – have been ramping up their presence in the Cambodian market for the past year, with no signs of abating.

To catalogue the past year’s investments funded by the dong would be a major task, but the following are examples from the month of May this year.

Agribank, Vietnam’s largest bank by assets, announced it would open its first branch in Cambodia next month, becoming the third Vietnamese bank to enter the market after Sacombank and the Bank for Investment and Development of Cambodia (BIDC).

BIDC, formed specifically to assist Vietnamese investors in the Kingdom, opened its first branch in Cambodia last year. It already has various loan contracts in place with fellow Vietnamese companies, including telecoms service provider Metfone.

Metfone, owned by the Vietnamese military subsidiary Viettel, entered the crowded Cambodian telecoms market last year and is now snapping at the heels of the country’s market leader, Royal Group’s Mobitel, according to Ministry of Posts and Communications data.

Meanwhile, state-backed behemoth Vietnam Oil and Gas Corp this month launched its subsidiary, Fertiliser PetroVietnam and Chemicals Corporation (PVFC) in Cambodia, promising a cheaper supply.

Economic Institute of Cambodia senior economist Noeu Seiha suggests that increasing Vietnamese trade and businesses registrations go hand in hand.

“Companies would be interested in coming to Cambodia because it’s much easier, once you have an office here, to export back to Vietnam,” he said.

Though many signs point to favourable trading conditions between the two countries as the driver behind Vietnam’s growing investment footprint in Cambodia, analysts suggest the immediate economic fortunes of Vietnamese businesses are just as indebted to the long political struggle in Thailand and its ongoing border dispute with the Kingdom.

Noeu Seiha said the situation in Thailand is an important factor in the strength of Vietnamese interest.

“We still trade with Thailand, but there’s special interest in Vietnam at the moment because of the problems. Trade with Vietnam is much easier,” he said.

Bilateral trade between Cambodia and Vietnam leapt 127 percent to US$432.5 million during the first quarter of 2010, compared with $190.5 million for the same period last year, according to figures released by the Vietnamese embassy this month.

Although the percentage increase is being measured from low trade figures recorded during the global financial crisis, it is at least three times greater than growth in bilateral trade between Cambodia and Thailand for the same period.

For Hul Sopheap, a Vietnamese wholesaler importing grocery goods to sell in Cambodia, the Thailand border dispute has been good for business.

“My business has been running very well since the political instability between Cambodia and Thailand because we’ve had more opportunities to bring more products to sell here,” he said.

“Over the last two years, I’ve seen many Thai investors come to invest and import their products to sell in Cambodia, but now it seems like they’ve been quiet.”

The Thai Business Council of Cambodia (TBCC) echoed Hul Sopheap’s view.

When the Cambodia-Thailand bilateral trade data were released, TBCC deputy manager Kreing Kria told the Post that fewer first-time investors from Thailand were looking to operate in Cambodia because of the situation back home.

Emerging Markets Investments managing director Joshua Morris also pointed to stability as a major factor in expansion.

“Typically, if a company’s domestic market is unstable – as is the case in Thailand – they’d be less aggressive in global expansion, given the uncertainties in their core domestic markets. If you have a relatively stable market like Vietnam, you’re more able to build off your domestic market base and may look more aggressively at international expansion,” he said.

But Le Bien Cuong, a commercial officer at the Vietnamese embassy in Phnom Penh, said the 200 or so Vietnamese companies doing business here are taking advantage not so much of damaged Cambodia-Thailand relations as of a good economic and stable environment in which to sell their wares.

Cambodia Institute for Development Study director Kang Chandararot said he saw no connection between Thailand’s pain and Vietnam’s gain, but he did acknowledge the rising tide of the Vietnam dong.

“Trade between Vietnam and Cambodia has been building up for a long time,” he said.

“This long-term relationship has helped Vietnamese firms gain market share in sectors such as agriculture, agro-processing [and] construction materials.”

Prime Minister Hun Sen has publicly and repeatedly encouraged Vietnamese investment.

“I guarantee Vietnamese investors lots of preferences,” he said at a business conference in Ho Chi Minh City last December.

On May 16, at a ceremony to mark the beginning of construction of the Vietnamese-backed Cho Ray-Phnom Penh Hospital, Hun Sen praised the cooperation of Hanoi, reiterating the joint aim to see bilateral trade reach $2 billion this year.

Even considering Hun Sen’s guarantees, Vietnamese companies are arriving fast.

PVFC deputy general director Nguyen Hong Vinh said Vietnam’s good relationship with Cambodia supported the company’s decision to enter the Kingdom.

“This is the first time we have opened an office in the Kingdom because, according to our research, Cambodia has very good potential. We are not only focused on building a business here but we are also focused on building on the relationship,” he said.

Morris of Emerging Markets Investment adds that swelling Vietnamese investment in the country is also a sign that the two economies are recovering from the financial crisis and increasing trade facilitation.

But the tide of investment may be limited by the Kingdom’s infrastructure concerns.

“There are many Vietnamese investors who’ve told me that they will come to invest in Cambodia over the next five years. They want to open companies and factories in Cambodia, but they told me the cost of electricity is very expensive, so they’re waiting for costs to go down,” wholesaler Hul Sopheap said.

It is clear that Vietnamese business is making its mark. What this means for Cambodia’s local producers and suppliers remains to be seen.

Kang Chandararot feels it will be a plus. “These investments provide a market for domestic producers,” he said.

But Noeu Seiha cautioned that it will be tough at first for domestic operators.

“Consumers will be able to get things for a lower price. But Cambodian businesses may lack the skills and acumen to compete. It will take some time to match Vietnamese knowledge and experience.”

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